Any Heikin-Ashi strategy is a variation of the Japanese candlesticks and are very useful when used as an overall trading strategy in markets such as Forex. Unlike the regular Japanese candlesticks, heikin-ashi candlesticks do a great job of filtering out the noise we see with Japanese candlesticks. They are also able to highlight the trend of the market much easier than other plotting methods.
The Heiken Ashi candlestick chart looks similar to its counterpart but the calculation of the candlestick gives it the different look. What that means is that each candlestick is formed on the heikin ashi chart is related to the previous one.
The advantage of this is that, it smooths out the noise in standard Japanese candlestick patterns. Most charting platforms will have the option to plot price movements as a heikin-ashi candlestick.
You can access that feature through your charting properties window. If you are using Metatrader MT4 indicator downloads , you can download the Heiken Ashi smoothed indicator by clicking here. Heiken Ashi candlesticks charts are used in the same manner as a normal Japanese candlesticks. We can quickly list 3 items that will allow you to understand the power of the HA candlesticks.
Heiken Ashi candlestick chart patterns allow you to stay with the overall trend by allowing your to avoid the noise or the minor fluctuations of price that is prevalent in a standard candlestick chart!
We will use the standard pullback trading technique and use the colors of the Heikin Ashi candles as well as the shadows to help deliver our trading signals. Our chart settings can be any time frame but keep in mind that trading signals on the higher time frames may deliver more profits in the end. In the following chart, the 20 EMA shows the major trend on this daily chart.
When we have the color shifts in the Heikin Ashi, until price patterns and 20 EMA show change of trend, we still look for shorting opportunities. We must place our stop loss when we enter a trade and in this case, a distance above the pivots highs would be a decent spot. You can set profit targets at the pivot lows the occur before the pullbacks. You can also take advantage of one of the best things about Heikin Ashi trading and that is to use the same exit method as you do entries.
You can exit your trade once the color flips. If you want a more active management during the trade, test out trailing your stop and tightening it when the presence of upper shadows in an downtrend show on the HA candles as this indicates weakness.
I will tell you right now there is no best strategy however there IS a best trading strategy for you! Some traders may find the simple strategy a little too….. These traders may need a little more framing of the market to aid in their trading. These traders may find the following strategy more to their liking. Note, for this trade management, you have to switch to a normal candlestick chart to do these.
The best way to get more profitable pips out of a strong trend is to trail stop your trades using subsequent lower swing highs for sell trades and higher swing lows for buy trades.
The reason for using the trailing stop this way is so that you give the market room to breathe and so you do not get stopped out prematurely.
You MUST have an understanding of price action and structure to avoid being chopped up in those markets. Stop loss may be large so ensure you use a proper position sizing model to place your stop. You may elect to use the Japanese candlestick chart to place your stop and then switch back to your Heikin Ashi for management. Each candlestick that is formed has no relationship except opening price except in some cases to the candlestick that came before it.
A Heikin ashi candlestick is calculated using some information from the previous candlestick: For those who need the details, here is how each Heikin-Ashi candlestick is calculated: Heikin Ashi candlestick is the average of the open and close of the previous candlestick High price: Chosen from the one of the high, open and close price of which has the highest value.
Chosen from the one of the high, open and close price which has the lowest value Close price: The average of the open, close, high and low prices.
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